The NSW government and the NSW Teachers Federation have criticised the federal government for officially abandoning the Gonski reforms in the 2014 budget.
The needs-based schools funding program will be scrapped after 2017, and will be indexed to inflation from 2018.
Under the original Gonski agreement, schools were guaranteed funding for six years, with the majority of the money coming in the final two.
Minister for Education Adrian Piccoli said NSW schools would be $1.2 billion worse off in 2018 and 2019, with schools in regional areas and disadvantaged students among the hardest hit.
He said the NSW government would continue to provide their share of the funding.
NSW Teachers Federation regional organiser Nicole Calnan said teachers were "outraged" at the cuts, which would cost schools in the Illawarra millions.
"A failure to fund the Gonski model will mean one in five NSW schools will not be able to meet the minimum resource standard that was recommended by the Gonski panel," she said.
"For students in kindergarten this year, it means some of the programs schools are putting in place to help students that may be struggling or kids that need extension, those programs ... just won't be there," she said.
Also under fire was the Abbott government's decision to put $245 million over five years towards a school chaplaincy program and the failure to allocate funds to support students with a disability.